Can Your Bank Debit Your Personal Accounts For A Delinquency?

The economy has caused a hardship for most of us. I know it has for my family, what about yours? 2010 marks my 10th year in the title industry. I am a business development manager for a national title insurance company in Phoenix, Arizona. If someone had told me in 2005 that 2006, 2007, 2008, 2009, 2010 and most likely 2011 & 12 would be marked by a flood of foreclosures, families being kicked out of their homes, the Arizona unemployment rate at 9%+, skilled professionals working at discount “big box” stores, lines around the University of Phoenix stadium for a job fair with 200 entry level jobs, I would have told you there was something wrong with you. And yet, here we are.

Money has never been tighter than it is now for millions of people. It is because funds are low for so many of us that a post I read from a friend on Facebook prompted this post. Almost 2 years ago I emailed over 1000 Phoenix Metro Real Estate professionals with a warning: Move your bank accounts to a bank you didn’t borrow money from. I said this because I learned early on that banks were debiting their customers savings/checking/investment accounts for delinquent payments on Home Equity Lines of Credit, Auto Loans, etc.. Many of the responses I received back said “they cant do that” or “you don’t know what you are talking about”. This was one of those instances where I wished I was wrong. Many real estate agents did nothing, left their accounts in banks that held their 1st, 2nd mortgage, HELOC or auto loans. Of course, the market continued to deteriorate, resulting in less sales and ultimately less money for many agents. You can see where I am going with this.

They Can’t Do That!

As I said, this is one of the most common responses I received from my initial email. I have news for you, YES THEY CAN. THEY is the banks. If you default on a bank loan, (whether it is a car loan, boat loan, personal loan or mortgage loan), the bank has a right, often times without prior notice to you, to take funds (your money) from your bank account(s) and apply them to the outstanding debt. It is called “Right To Offset” or “Right of Setoff”

May a bank take money from my deposit account to make a payment on a loan that I owe to the bank?

“Usually, yes. Generally, a bank may take money from your deposit account to make a payment on a separate debt that you owe to the bank, such as a car loan, if you are not paying that loan on time. This is called the right of offset.

In some situations, the bank can exercise the right of offset without letting a customer know in advance that it is going to do it.

However, federal law limits what a bank can do in some cases. For example, federal law won’t allow a bank to offset your deposit account to pay off your consumer credit card account”.

So, what should you do to protect yourself?

Well, I really can’t tell you what you should do, so let me tell you what I would do in this situation. If I was someone, a consumer, concerned about my bank’s right to setoff or offset my bank account, I would open another account in a different
bank, preferably one that I have never done business with, and certainly one, that I DID NOT owe any money to. Then, I would MOVE my checking, savings and investment accounts to this new bank. I would leave the minimum balance in my “old” bank and seek council to make 100% sure I didn’t violate any terms in my agreement with the bank.

Now, I am not advocating anyone to not pay their bills. But, I am also keenly aware that there are millions of people, many right here in Arizona, that may not be able to pay their mortgage, or car or boat loans. I would hate to see them lose that money, a vital resource to feed their family or keep the lights on to an entity that may very well be the reason we are in this mess, an entity that received BILLIONS of our Tax Dollars.

Hi I'm Stephen Garner, I'm just a guy in the title industry {in Phoenix} trying to change how real estate agents market themselves and their services. To that end, I teach my clients HOW TO leverage sales technologies like WordPress, Content, Video, Camtasia, Final Cut X, iMovie and indexable IDX solutions to convey value and help your ideal client find you online when they are most interested in learning about you and your services. I work for escrows. Hire me!